Your firm is interested in investments and reads in the Treasury Direct that T-Bills are yielding 10%. Your sister, a broker at YXC Securities, advised you to explore either treasury or corporate investments, given the current interest rate premiums. The data she gave is represented in the table : Interest Rates Inflation premium (IP) 6% Maturity risk premium 2% (MRP) Default risk premium for AAA bonds (DRP) Default risk premium for BBB bonds (DRP) Liquidity premium for long-term Treasury bonds (T-bonds) (LP) 3% 4% 1%

Your firm is interested in investments and reads in the Treasury Direct that T-Bills are yielding 10%. Your sister, a broker at YXC Securities, advised you to explore either treasury or corporate investments, given the current interest rate premiums. The data she gave is represented in the table : Interest Rates Inflation premium (IP) 6% Maturity risk premium 2% (MRP) Default risk premium for AAA bonds (DRP) Default risk premium for BBB bonds (DRP) Liquidity premium for long-term Treasury bonds (T-bonds) (LP) 3% 4% 1%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Kirstin Brown is a portfolio manager at Standard life plc. She wants to estimate the interest rate risk of assets of the company consisting of 1 million shares of Bond A, 2 million shares of Bond B, and 2 million shares of Bond C. The duration of Bond A is 5.59, a valuation model found that if interest rates decline by 30 basis points, the value of Bond A will increase to 83.5 pounds, and if interest rates increase by 30 basis points, the value of Bond to A will decline to 80.75 pounds. The same valuation model also found that if interest rates decreases by 50 basis points, the value of Bond B increases to 104.6 pounds, and if interest rates increases by 50 basis points, the value of Bond B decreases to 96.4 pounds, and the current value of Bond B is 100 pounds. Kirstin also knows from the valuation model that, by using the duration and convexity rule, if interest rates decline by 1%, the price of bond C increases approximately by 8.46 pounds, and if interest rates increase by 3%, the…
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A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 6%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet What is the percentage change in the price of each bond after the decline in interest rates? Assume annual coupons and annual compounding. Fill in the following table. Do not round intermediate calculations. Round your answers to two decimal places. Price @ 9% Price @ 6% Percentage Change 10-year, 10% annual coupon $ fill in the blank 2 $ fill in the blank 3 fill in the blank 4 % 10-year zero fill in the blank 5 fill in the blank 6 fill in the blank 7 % 5-year zero fill in the blank 8 fill in the blank 9 fill in the blank 10 % 30-year zero fill in the blank 11 fill in the blank 12 fill in the blank 13 % $100 perpetuity fill in the blank…
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Please put the figures in the workings instead of leeters, for example the solutions to this question below: Abacus Ltd is an investment fund that specializes in fixed-income securities. At the end of 2010, the fund’s bond portfolio has the following information Bonds Yield to maturity Price Duration Convexity A 12% 1045 2.35 16.46 B 14% 2265 4.26 22.80 C 8% 1430 3.45 11.96 D 10% 1100 4.20 15.56 Assume that the yield to maturity on each bond increases by 4%, calculate(i) The percentage by which the price of each bond will decrease.(ii) The amount in cedis by which the price of each bond will decrease.(iii) The percentage and the cedi decrease in the total value of the portfolio. Please the answers to this question, I need the full solution.
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You are the portfolio manager of a large company that invests in many securities including corporate bonds. You have been assigned the task of bond portfolio management. You are provided with the following data in relation to bonds: Maturity period 15 years Coupon rate 12% Par value $1,000 Coupons on bonds are paid annually Yield to maturity of bonds 8% Required: i) Calculate the Macualay’s duration, modified duration and convexity ii) Calculate the change in bond price when yield to maturity changes by one percent using modified duration iii) Calculate the change in bond price when yield to maturity changes by one percent when convexity is considered Please show me the details calculation.
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An investment firm recommends that a client invest in bonds rated AAA, A, and B. The average yield on AAA bonds is 4%, on A bonds 6%, and on B bonds 11%. The client wants to invest twice as much in AAA bonds as in B bonds. How much should be invested in each type of bond if the total investment is $28,000, and the investor wants an annual return of $1,740 on the three investments? Question content area bottom Part 1 The client should invest $enter your response here in AAA bonds, $enter your response here in A bonds, and $enter your response here in B bonds
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Kirstin Brown is a portfolio manager at Standard life plc. She wants to estimate the interest rate riskof assets of the company consisting of 1 million shares of Bond A, 2 million shares of Bond B, and 2million shares of Bond C. The duration of Bond A is 5.59, a valuation model found that if interest ratesdecline by 30 basis points, the value of Bond A will increase to 83.5 pounds, and if interest ratesincrease by 30 basis points, the value of Bond to A will decline to 80.75 pounds. The same valuationmodel also found that if interest rates decreases by 50 basis points, the value of Bond B increases to104.6 pounds, and if interest rates increases by 50 basis points, the value of Bond B decreases to 96.4pounds, and the current value of Bond B is 100 pounds. Kirstin also knows from the valuation modelthat, by using the duration and convexity rule, if interest rates decline by 1%, the price of bond Cincreases approximately by 8.46 pounds, and if interest rates increase by 3%, the price of…
Suppose Anastasia has a consol bond (a perpetuity bond) that pays an annual coupon of $200 per year and yields on similar types of investments are 10%. If Anastasia expects competing yields will increase to 12%, what is her expected capital gain (positive for a gain and negative for a loss)? a. -$333.33 b. $2,884.47 C. -$1,666.67 d. $1,066.67

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